Alright. Now, my general point – and I mentioned this to both you and Michael, so maybe Michael can comment on this. As I look at the programs that I hear about – deporting immigrants, erecting tariffs, making the Europeans pay for the war in Ukraine (or else close the war down), or the mumbo-jumbo of privatization… I mean, what you just showed us is remarkable. It’s as if this man was Rip Van Winkle, had been asleep for 30 years, remembered the slogans of 30 and 40 years ago – which were, by the way, privatization, deregulation, energy dominance – articulated by a man who seems bored telling us about it, which is the only glimmer that there’s some intelligence there.
Because bored is what you ought to be, because that is the oldest recipe for something which not only didn’t work, but produced such a backlash that Mr. Trump got elected. None of which seems to have penetrated through the thick skull of this new Secretary of Finance.
MICHAEL HUDSON: Well, I think he’s Secretary of the Treasury, and I want to talk about his economic policy, and the relationship. What Trump has proposed is quite radical. Trump has said that he wants to merge the Federal Reserve into the Treasury. I think that’s a wonderful idea.
The Federal Reserve was created in 1913 to break control of the financial system, away from the government, to put it in the hands of commercial banks. J.P. Morgan and a group of other people said, We don’t want elected representatives to have any say in how the economy allocates credit; so we’re going to create a new institution – the Federal Reserve – and it’s going to take over all of the Treasury’s policies.
We’re going to move it out of Washington to New York, Wall Street, Chicago (with the Mercantile Exchange), Boston, Philadelphia, and other financial centers; and we’re not even going to let a Treasury representative sit on the Federal Reserve Board. The government will have no say at all over financial policy, tax policy, or general (who’s going to get the credit and what will the credit be used for). We at the Federal Reserve will run the monetary system to help the banks, to help Wall Street, not to help the overall economy, which is not what our interest is. Our interest is making money financially, not by helping raise living standards.
Well, just imagine what this would mean to actually put the Fed back into the Treasury. The big fight between them that I remember occurred in the early 1950s, when the economy was just beginning to recover, when Eisenhower was coming in. The fight was over interest rates, just like it is today. The Federal Reserve wanted to raise interest rates because it says, We have to stop inflation. When the Fed says “inflation,” that means rising wages. It said, We have to keep… the economy’s recovering; there’s been this whole post-war recovery, but one bad thing is happening: wages are going up, and that means that the loans that our banks have made don’t have the command over Labor as much anymore. It’s easier for Labor to pay off its debts when prices and wages are rising. So we want to raise interest rates to keep the wages low.
Well, the Treasury came in and said, There’s a problem here: if you raise interest rates, then the money that we pay to bondholders is going to go way up, and the federal budget is going to have to spend more and more money, paying interest to bond holders. Then the Fed said, But bondholders are our constituency; the banks are our constituency. We make more money at high interest rates. The Treasury tried to say, No, we don’t want interest rates to go up; but Eisenhower and the Republicans said, The Federal Reserve has it; the Federal Reserve has dominance over the Treasury. What that means is that the private sector has more control than the public sector. All of this was called the Federal Reserve Treasury Accord.
And that issue is exactly what’s in today. Right now, you have the Federal Reserve lowering interest rates in order to somehow keep the stock market and bond market rising, so that when Trump takes over in January, the Fed can then say, Oh, there’s an inflation: let’s raise interest rates, crash the stock market, as a result of the Fed’s action, and then say, Look at what Trump has done: he’s collapsed the stock market.
The economy is going down (because the economy is the stock market: the economy is what… 10% of the population has 87% of the stocks); so essentially they want to set Trump up for blame. He realizes that and I think that’s what he wants the Treasury to do.
So, now we have Mr. Scott Bessent put in. He’s a hedge fund manager. Imagine looking at the economy as if it were a hedge fund? A hedge fund is a zero-sum game: you bet against somebody else in the financial horse race, and if you win (and he became a billionaire doing this), then somebody has to lose.
He made his first fortune working with George Soros in raiding the British pound. And Soros put together a gang of wealthy financiers that said, We can all sell the pound sterling, and the British government won’t have enough money to outbid us, and we can force the pound down.
They raided sterling. They forced it to devalue. They made a billion dollars on this. Well, just imagine how Mr. Bessent can repeat that today with the euro. It’s pretty sure that the euro is going to go down when Mr. Trump’s policy of cost-cutting comes in by cutting. If Trump can cut the membership in NATO, there goes the euro, down.
The question is, how is this going to affect the domestic economy? Well, as Mr. Bessent said, he’s going to do what Japan’s disastrous Prime Minister Abe did in the 1990s. And Abe did what Margaret Thatcher and Tony Blair did: they’re going to privatize. They’re going to shift the tax burden onto consumers, basically, and they’re going to begin selling off whatever assets the government can have. It’s very hard to actually cut back social spending, because there are a lot of vested interests in there. I guess the only thing you can really cut back is education, because President Trump said he’s going to abolish the education department. Let’s privatize education.
Just as Thatcher began her privatization by selling off British telephone, and the water companies, and the bus companies. And her job was finished by Tony Blair, moving to the right of the conservatives, by selling off the railroads. Prices for everything – transportation for buses, railroads, everything – went way up. Prices of water, way up. Phone costs went way up. The privatization is going to drastically raise prices. And what we’re seeing really is the punch two in the one-two policy that the Republicans have been using for the last 50 years.
First, they cut taxes on the rich – not people as a whole, but basically on the wealthiest 10%. Then they say, Look at the budget deficit we’ve created. We’ve got to fix it. How do we fix it? We cut spending. And as if somehow you bring spending down, to live within the tax cuts on finance and real estate, and basically rent-seeking activities. You don’t raise taxes again. You begin selling off and cutting spending. That’s basically what they want to do.
The question is, what on earth do they have to sell off? What can they privatize here, that’s left? Well, they’re going to probably privatize the Post Office. They’ll merge it with, maybe, United Parcel, or someone else. Imagine what that’s going to do, not only to your Post Office fees that you have to pay out to a monopoly, the prices that you’re going to have to pay.
Privatization of schooling is going to be, essentially… there will be no more free public schooling. It’ll all be, either the students and their families will have to pay, or the localities (New York City and other cities) will have to pay for the education.
So there’s a huge shift in the cost of government, off the, being financed either out of taxes or out of simple government money creation. The fact is that it isn’t necessary to finance the budget deficit out of cutting taxes. As Modern Monetary Theory points out, the Treasury can solve it very easily. You print a trillion dollar coin, give it to the Treasury… now you have a balance sheet. Now you don’t have to borrow anymore. You finance the American economy today, like the United States financed the Civil War: you just print the money. It’s no more inflationary than borrowing the money from bondholders – and, actually, it’s less inflationary because you don’t have to pay interest.
I think you can expect Mr. Bessent to point out that the government accounting office says that if the budget deficit grows at the rate we expect, and interest rates return to normal high rates, like they are today (or at least last month), then the payments to bondholders are going to be larger than all of America’s military spending. This (also) forecast is rising.
So we’re in an economy that looks like it’s going to be essentially draining the whole economy to pay to the bondholding and banking class. That’s the problem that Mr. Bessent at the Treasury faces, and that’s also the solution. Right across the board for Trump’s appointees, he wants to abolish federal agencies and essentially do to America what Thatcher and Tony Blair – and Prime Minister Abe did in Japan – did.
And it’s going to raise costs very substantially. It’s going to put the class war back in business. It’s going to mean that the wealthy people who used to pay the costs of financing government are replaced by the lowest income brackets. It’s a degree of polarization that they dare not say out loud, but that’s the policies, and that’s certainly the attitudes that they have.
You have a deficit, cuts… we’ve created the deficit by cutting taxes (now that’s the one-two punch). Let’s cut… we can’t cut spending that much, but we can begin selling off the whole country. We’ve already sold off politics through the Citizens United ruling of the Supreme Court. What else do we have to sell off? Maybe that’s what we should…
We have to be a stand-up comedian, I guess, to really begin discussing this.
RICHARD WOLFF: Yes. Let me pick up what Michael said, but come at it from a slightly different vantage point. In my judgment, what he said could be summarized as a set of consequences, or effects, from what I keep referring to as the declining empire.
When this system can no longer pull wealth from the rest of the world, the way it got used to doing in the second half of the 20th century, it is now facing contractions. And it didn’t expect to lose the war in Vietnam. It did. It didn’t expect to lose the war in Afghanistan. It did. It didn’t expect to lose the war in Ukraine. It is in the process of losing that one, and perhaps ending it
is what Mr. Trump is going to do, because it is such a losing proposition.
Well, the importance here is if the American economy is constricting, then the people at the top – the policy makers, the CEOs, the big political leaders, all of them – they basically face an existential choice. They can say to the people, Our empire is now in decline, as every empire has always been. It’s not our fault. It’s the way empires go. And we are now going to all have to get together and work out how we as a society navigate a decline.
It can be done. Even the British, who didn’t do a good job, were able to navigate, in the end of the 19th and across the 20th century, the disappearance of their empire.
So that’s one way to go. And the other way to go is to say, We are the rich and powerful. We can, and we will, hold on to all that we have gained in the last century. We, who benefited most from the American empire, we will hold on, and will off-load the costs of a declining empire onto everybody else. Who needs a college education? Who needs payment to working-class people who have no job? Who needs, who needs, who needs…? We don’t have to have that. We can deregulate and privatize… or any other Madison Avenue B-S to cover it over. But what it is, is: We are going to keep Ours. In fact, We are going to grow Ours. You? It’s your own fault.
Look at the tone that is even more brought in by the people that Trump is gathering.
But here – that’s the bad news. Here comes the good news. The decline of the American working class is now 30 to 40 years old. Real wages are completely stagnant, for 30 to 40 years. The Wall Street Journal and other magazines and newspapers like that have to say, Wait a minute… no, no, no! Over the last 50 years, we’ve done the math: it’s up 10%!
If you get a real wage increase of 10% in 50 years, that works out to less than half a percent a year; and that’s a rounding error. You can’t even be sure your measurements are not the reason for such a change. That’s called stagnation. Over the last 40 years, the real average, real wages in China have quadrupled. There is no contest here. We are sticking it to the working class.
But why is that good news? It’s good news because that’s why Mr. Trump was elected the first time. And because he didn’t stop that process, Mr. Biden was elected the next time. And because Mr. Biden didn’t stop that process, Mr. Trump could get back in. And you know what? If Mr. Trump keeps doing what he did before, and what Biden did, he will go out in four years as spectacularly as he just got in.
Because neither he – and to be fair – neither he nor the Democrats are facing what the problem is: telling the American people what it is, and coming up with something that might unify the country in dealing with an existential decline of an empire. That is rough! But they’re not doing it. They’re pretending they can do whatever they want. They can, you know, blow up the pipelines in the North Sea. They can push Europe into the status of a vassal in a feudal arrangement… It’s horrific to watch. The only thing uglier than what is being done to Europe is the complicity of the leaders of Europe in all of that happening, because they’re so desperate.
And the rise of China and the BRICS is the counterweight to all of this. And there’s nothing in Mr. Trump’s economic proposals… and please, Michael, if you disagree, point it out to me. I would be happy to be corrected. I see him doing tariffs; that’s going to worsen the inflation! But the inflation is what got him into office! He can’t do that.
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Otherwise it defeats the whole point of communication?
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